Running at a loss can be a red flag. Many of these businesses face mounting challenges as competition increases and funding becomes harder to secure.

A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.

Appian (APPN)

Trailing 12-Month GAAP Operating Margin: -2.1%

Powering billions of transactions daily since its founding in 1999, Appian (NASDAQ: APPN) provides a low-code platform that helps businesses automate complex processes and operationalize artificial intelligence without extensive programming knowledge.

Why Does APPN Worry Us?

1. Revenue increased by 13.9% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
2. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
3. Low free cash flow margin of 7% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Appian’s stock price of $28.70 implies a valuation ratio of 2.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than APPN.

Noodles (NDLS)

Trailing 12-Month GAAP Operating Margin: -2.5%

Offering pasta, mac and cheese, pad thai, and more, Noodles & Company (NASDAQ: NDLS) is a casual restaurant chain that serves all manner of noodles from around the world.

Why Is NDLS Risky?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
2. Performance over the past six years shows its incremental sales were much less profitable, as its earnings per share fell by 47.8% annually
3. 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $0.64 per share, Noodles trades at 2.6x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including NDLS in your portfolio.

10x Genomics (TXG)

Trailing 12-Month GAAP Operating Margin: -15.6%

Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.

Why Are We Cautious About TXG?

1. Muted 6.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Negative returns on capital show management lost money while trying to expand the business

10x Genomics is trading at $11.30 per share, or 2.4x forward price-to-sales. If you’re considering TXG for your portfolio, see our FREE research report to learn more.

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